Interest rates on lending decreased further in July as commercial banks were forced to cut the rates against the backdrop of businesses’ persistent reluctance to borrow from banks amid a sluggish business situation in the country.
Interest rates on lending, however, had slightly increased to 9.66 per cent in May after a 29-month fall.
The weighted average interest on lending decreased to 9.51 per cent in July from 9.56 per cent in June this year.
Banks were forced to cut the lending rates due to a sluggish credit demand from the businesspeople amid a dull business situation in the country for long, a BB official told New Age on Thursday.
The BB data, however, showed that the weighted average interest rate on the banks’ deposit products also decreased to 4.89 per cent in July from 4.93 per cent in June of 2017.
The BB official said that banks continued to decrease the rates of interest on their deposit products as the general people were now more interested in investing their money in the national savings certificates.
The rates on the government tools are higher compared with the rates on the prevailing deposit products offered by banks, he said.
The rates offered by the NSCs are between 11.04 per cent and 11.76 per cent while banks give maximum five to seven per cent interest against their deposit products, he said.
The country’s businesspeople have adopted a ‘wait and see’ approach in regards to expanding their business by taking bank loans due to the sluggish business trend, he said.
Due to the lower credit demand from the industrial sector, banks are now holding huge excess liquidity that has forced them to rush to invest the fund in the government treasury bills and bonds.
The BB data showed that interest rates on all types of T-bills and bonds also dropped in recent months, as most of the banks submitted huge number of bids at the auctions for the instruments to invest their idle funds.
The BB official said the banks had trimmed their interest rates on lending throughout last year to encourage entrepreneurs, but their (entrepreneurs) response was yet to reach a satisfactory level.
The BB is frequently asking the banks to disburse more credit to the SME and agriculture sectors to
stimulate the private sector credit growth.
A number of banks have been disbursing consumer loans in recent times to the clients to ensure their profitability. Banks have also cut the interest rates on consumer loans to 8 per cent-11 per cent from 16 per cent-18 per cent.
The BB data showed in July the weighted average rate on lending stood at 8.67 per cent at the state-owned commercial banks, 8.66 per cent at the specialised development banks, 7.90 per cent at the foreign commercial banks, and 9.83 per cent at the private commercial banks.
The weighted average rate on deposit in July stood at 4.56 per cent at the state-owned commercial banks, 5.97 per cent at the specialised development banks, 5.20 per cent at the private commercial banks, and 1.61 per cent at the foreign commercial banks.
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